Should I Invest In a Bitcoin ETF?

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BitcoinsThat’s the question the Vinklevoss twins want to know the answer to and their guess is “yes!” CNNMoney reported earlier last week that Cameron and Tyler Winklevoss, whose names you might recognize if you followed the saga of Facebook, filed a proposal with the SEC to offer an exchange-traded fund that would let investors trade in bitcoins. While we have no idea if regulars would approve such a thing, I think the idea is interesting to discuss.

I’ve been following bitcoin for a while, I’ve never done anything more than read about it. I watched its meteoric rise and fall (and smaller rise and fall) earlier this year because the idea of a de-centralized currency is fascinating. The appeal is simple – currency that cannot be manipulated by a central government and one that has zero regulation. The only difference between it and any other currency is acceptance.

As we all know, the US Dollar, like every other currency, is fiat money. We all accept it because the government says so, which is why it’s called legal tender. If I owe you money and I want to pay in dollars, you are legally obligated to accept it as a form of payment. (The legal trickiness part is that this doesn’t apply when the “debt” doesn’t exist before payment… as is the case when buying something. So if I want to buy something from you and pay in pennies, you could decline saying you don’t want all those pennies.)

Since bitcoin isn’t legal tender, no one is required to accept it as a form of payment. It’s no different than a personal check from a legal perspective. But then again, what is a stock? It’s a piece of paper that says you own a microscopic part of a publicly traded company that is required to make certain SEC filings on a regular basis. You can’t go and buy anything with a share of Apple stock.

So the question is, would you invest in a bitcoin ETF? As for me, there’s no way I’d invest in a bitcoin ETF. I might gamble with a bitcoin ETF but it’s unproven, there are no fundamentals to even make an informed decision, and any investment is really no different than picking red or black in roulette.

Also, we still aren’t sure about the security of the bitcoin infrastructure. There are several exchanges and many experience outages or get hacked often. They’re lucrative targets because they don’t have the size and scale of mainstream financial institutions or the depth of experience dealing with hackers and thieves on a regular basis.

Fortunately, many of these risks are outlined in their filing and they write it in a way that’s far scarier:

The loss or destruction of a private key required to access a Bitcoin may be irreversible. The Trust’s loss of access to its private keys or its experience of a data loss relating to the Trust’s Bitcoins could adversely affect an investment in the Shares.

In other words, the trust could get hacked and lose the private key to its bitcoins… and your investment. If you lose your private key, it’s gone. There’s no one to call up and help you unlock your account. 🙂

So – would you invest? 🙂

(Credit: zcopley)

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8 Responses to “Should I Invest In a Bitcoin ETF?”

  1. I don’t think there’s any way I’d invest in one. I am all for taking on risk and am more risk friendly than most, but this would be crazy risk for me personally.

  2. I agree Jim, investing in a Bitcoin ETF would be more like gambling at this point. I’m fascinated though by the Bitcoin phenomenon and am interested to see whether it gains real traction.

  3. Yana says:

    I do find it interesting, and I actually did get a trading account and validated my bank with it – but have never been certain enough or comfortable enough to actually trade.

  4. Shafi says:

    I used to take risks in investing when I was younger. Now I’m “heavily” risk averse. Bitcoin ETFs seem to be for the younger generation because they can take risks. Older folks closed to retirement or in retirement can stay away from it.

  5. elloo says:

    For some reason, this reminds me of the Dutch tulip craze in the 1700’s. I could be way off base on this comparison, but you may get my drift.

  6. admiral58 says:

    the easy money has been made in this product. I wouldn’t invest

  7. Yeah, I think it’s already crashed 50% in a matter of days a couple of months back.

    Seems more like speculation to me.

  8. jsbrendog says:

    no chance in hell. Maybe throw in the $300-$500 I would plan on budgeting to lose on a trip to AC, stay home instead and see what happens but anything more? Hell. No.

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